Charlie Munger World's Most Humble? Believe it. Plus, the Next Investor Armed With 'Umbrella Humility'.

It’s no secret that Charlie Munger idolizes Benjamin Franklin. Warren Buffett makes the point in the forward to the excellent “Poor Charlie’s Almanack” that Munger has sought to emulate and improve where possible on Franklin’s thinking. (Buffett notes that Munger’s only addition to his predecessor’s essay “Advice on the Choice of a Mistress” was simply his trademark “I have nothing to add”).

Buffett on Munger's humility.

Like Franklin, Munger worked very hard at 12 virtues[1] his coryphaeus identified, though doesn’t seem to have bothered with anything like Franklin’s attempt to master the 13^th virtue: humility. Perhaps this is the result of Munger’s take on opportunity cost, “Opportunity cost is a huge filter in life. If you’ve got two suitors who are really eager to have you and one is way the hell better than the other, you do not have to spend much time with the other. And that’s the way we filter out buying opportunities.” Acquiring humility, for Munger, might have seemed a fabulous waste of time given Franklin’s opinion that acquiring humility wasn’t really possible. Franklin wrote, “for, even if I could conceive that I had compleatly overcome [my pride], I should probably be proud of my humility.”

Munger has even been quoted as saying, “In my whole life, nobody has ever accused me of being humble. Although humility is a trait I much admire, I don’t think I quite got my full share.” He mentions, in a comedic vein, that he has only managed to partly overcome his defect of the conventional definition of humility by “becoming very rich, and generous…it takes both to overcome a defect like that.”

I was quite surprised to come across a video in which Munger makes the claim that both he and Buffett are massively humble. Munger redefines the concept of humility. “If you know the edge of your own competency and you  aren’t arrogantly stepping over the boundary. I’m very good at that. But within my own area of competency, my best friend wouldn’t not adore me for my humility.”

In fact, he defines this characteristic as being key to his success. When asked with the question why a couple of guys from Omaha do so much better “I think we know the edge of our own competency better than other people do. And that’s humility in the umbrella sense. And that is a very important thing to know.” (The topic of humility comes up at about the 9 minute mark of the video above). 

Using Munger’s ‘Umbrella Humility’

Warren Buffett and Charlie Munger were in a reflective mood at their latest ‘woodstock for capitalists’ gathering for the Berkshire Hathaway annual shareholders meeting. The pair even offered a prospective look at what the next 50 years is likely to bring for their conglomerate—the most successful in the history of the world.

Buffett’s and Munger’s recent treatise is already well-worn ground, and has been covered much better by those vastly more qualified (and interested) than I. Yes, the talk of succession planning—some remarked that succession planning is Buffett’s and Munger’s most glaring blind-spot—has people obsessed with who’s next at Berkshire. More than that, though, it was the recent death of fellow Graham super-investor Edward Schloss—and the fine retrospective by his son—that turned my attention to a related but even more important question. Rather than finding a replacement at Berkshire, what if one could instead find the next Berkshire, the next Buffett?

Now, I don’t think there’s much chance that anyone will come along and duplicate Buffett and more than anyone will come along and be the next Michael Jordan (though LeBron’s ability to, as Haralabos Voulgaris tweeted, “reinvent himself into hyper usage Lebron. #witness” is perhaps even more superhuman than Jordan—as Buffett wrote about ‘superinvestor’ Bill Guerin, “Size is the anchor of performance. There is no question about it. It doesn’t mean you can’t do better than average when you get larger, but the margin shrinks.”—and Curry’s handle, quick release and range are qualities I’m sure even Jordan would have wished for). While I’m sure whomever takes over the CEO position at Berkshire will be extraordinarily capable, and Berkshire will be just fine. But if I were looking for performance anything like Buffett’s own, I’d look somewhere that more closely resembled Buffett’s starting point rather than his (near) end point. I’d want to find a person or team that had some room to grow.

Charlie Munger frames the issue well, speaking about Jack Welsh he averred,  “What you want is a nut, and one young enough to have a good long run…”.  I’ve taken some time off from this blog to pursue an advanced degree. Anything resembling a loyal reader I’d attracted along the way is no doubt long gone, alienated by my year-long hiatus. That’s too bad. I’ve never been interested in most of the stuff that people are looking for—even, probably, from this blog itself—either the path to riches or a strong, functional body. I’ve been concerned with the process—what processes make people fit intellectually and physically? But this post will actually deliver on the good people are looking for: where do I find the next Berkshire, and how will I know when I see it?

Greg Glassman has spelled out the basic fundamentals in physical fitness more explicitly, but both Glassman and Munger offer compelling accounts of how we can train our minds and bodies. Glassman’s general physical preparedness is very much like Munger’s latticework of mental models. Use either and you’re likely to do quite well in this world. They’re both pretty simple, but neither is anything but easy.

So people continue to look for get-rich and get-fit schemes that take shortcuts and somehow cheat the process. Glassman’s method certainly won’t help anyone who doesn’t use it. For proof, just look at Glassman himself. What about Munger’s?

Of course, no one will get any smarter who pours over “Poor Charlie’s Almanack” who doesn’t then incorporate the insights the book contains into her own thinking and practice. Both Munger and Buffett consistently stress the importance of learning continually—and that continuously applying his mental models approach is essential to this task. Most people, though, don’t care about acquiring a coherent set of mental models to put to use in solving life’s—or even investing’s!—vexing problems. What most people want is to acquire a lot of money. So, despite the fact that, as Michael Oakeshott points out, “One may purchase a painting, but not an understanding of it,” people realize that they don’t have to understand money to spend it. 

While Glassman correctly understands the nature of fitness, his understanding won’t make him any fitter.  To be fit he needs to put his understanding into practice. Warren Buffett and, to a lesser extent, Charlie Munger are popular precisely because getting rich doesn’t have this character. It’s no more possible to think like Charlie Munger without taking the steps to cultivate a mind like his than it is to get fit by reading the CrossFit Journal. But a lot of people got rich by simply having enough sense to let their money ride on Berkshire, and the geniuses Buffett and Munger. Those who bought in early enough and stayed in long enough may not be able to think like Charlie Munger or Warren Buffett, but they’re no more likely to feel the sting of the insult, “if you’re so smart, why aren’t you rich?”

Find a Combination of a Genius and a Fanatic…and One Young Enough to Have a Long Run

Charlie Munger is famous for valuing many things over IQ. Clearly, it didn’t take a massive IQ to stick with Berkshire (or Wesco—though, Munger himself did experience a rough patch (note years 1970-1974 in the chart below), leading credence to the idea that taking the long view in investing as in life is a very good idea). The guy who introduced me to Charlie Munger has a near perfect collection of all the stuff Munger prizes. It’s no accident. He’s studied Munger as long as I’ve known him. His name is Allan Mecham, and he runs a fund that does quite well. I don’t know what his IQ is—I’m suspect it doesn’t match Munger’s—but he’s plenty smart. What’s truly amazing is that he’s every bit as disciplined as his idol. You might do well buying into Munger—just take a look at what he’s done at Daily Journal Corp.—but you probably won’t sustain those returns for too many years.

Given that you don’t have to actually be able to acquire and apply Munger’s mental model approach—all you need is to be able to find someone who can—many people are invested in seeking out that kind of person. Few people have that kind of dedication. I attended the University of Utah near the end of Rick Majerus’s run as basketball coach there—Majerus might be on the Mount Rushmore of combining genius with fanaticism. I scheduled afternoon classes in the building adjacent to the team’s practice facility because I loved watching and learning from him. He was singularly devoted to—most would say obsessed with—basketball. He had little life outside the game. In his autobiography, he deflected praise of those who called him a genius saying that if he were he’d go to Wall St. and make real money.

While most of the rest of our circle of friends was concerned with youthful pursuits—like basketball—Mr. 400% was focused on learning from the best. He digested everything he could get his hands on about Buffett and Munger. He had the single-mindedness of Majerus, but the game he was interested in, unlike the ball coach, was Wall St.

I’m grateful to Allan for introducing me to Charlie Munger for the increased understanding Munger’s ideas continually afford me. The rest of you can be grateful for the understanding—and application—Mecham has acquired. Because he’s going to make a lot of people a lot of money. I obviously have no idea what it was like for those who recognized Buffett’s ability early enough to bet on it 50 years ago. But Mecham’s young—I’m not yet 40 and he was a couple grades behind me in school—enough and dedicated enough to have a good 50-year run in him.

The point of this blog was never to be focused on finance, let alone to offer advice on how people might invest their money. But in thinking about Munger’s idea of ‘umbrella humility’, it’s obvious that not everyone will be able to acquire what Oakeshott calls the practical knowledge necessary to invest successfully any more than everyone will be able to beat the market. Recognizing that Munger’s famous aversion to frictional costs in transactions suggests that simply investing in a market index fund is a pretty good way to go. I suspect there’s an even better option, though.

I don't know if Allan Mecham has any more or less conventional humility than Charlie Munger. I do know, though, that he shares with Munger the rare attribute of umbrella humility. He's also got a track record to prove it. Amazingly, he's also got a lot of years ahead of him. 

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[1] Here's Franklin's full list:

1.  TEMPERANCE.  Eat not to dullness; drink not to elevation.

2.  SILENCE.  Speak not but what may benefit others or yourself; avoid trifling conversation.

3.  ORDER.  Let all your things have their places; let each part of your business have its time.

4.  RESOLUTION.  Resolve to perform what you ought; perform without fail what you resolve.

5.  FRUGALITY.  Make no expense but to do good to others or yourself; i.e., waste nothing.

6.  INDUSTRY.  Lose no time; be always employ’d in something useful; cut off all unnecessary actions.

7.  SINCERITY.  Use no hurtful deceit; think innocently and justly, and, if you speak, speak accordingly.

8.  JUSTICE.  Wrong none by doing injuries, or omitting the benefits that are your duty.

9.  MODERATION.  Avoid extreams; forbear resenting injuries so much as you think they deserve. 10.  CLEANLINESS.  Tolerate no uncleanliness in body, cloaths, or habitation.

11.  TRANQUILLITY.  Be not disturbed at trifles, or at accidents common or unavoidable.

12.  CHASTITY.  Rarely use venery but for health or offspring, never to dulness, weakness, or the injury of your own or another’s peace or reputation.

13.  HUMILITY.  Imitate Jesus and Socrates.

Charlie Munger, Blaise Pascal, and the psychology of misjudgment in ‘the gambler’s fallacy’

The psychology of misjudgment and the gambler's fallacy

The New Yorker recently posted a devilishly interesting piece on the myth of the hot hand in gambling. (The author, Jay Caspian Kang, writes both for the New Yorker and ESPN.com’s Grantland). This topic has received much scrutiny in the sports world (including a spate of debunking articles, followed by a more optimistic piece—don’t be too surprised if subsequent studies take a similarly non-liner explanatory path). This study is the first of its kind I’ve seen applied to gambling. Though, I have seen more evidence than I’d care to recall of the phenomenon in practice. 

A new study on the existence of a 'hot hand' in gambling is something out of a Dostoevsky novel.

This piece is rich in what Munger calls ‘the psychology of misjudgment’—right down to the commissioning body: the ‘Responsible Gambling Trust’, an organization funded by casino companies trying to find ways to prevent problem betting. You can bet that the headlines the study will generate—‘New Report: Hot Hand Real in Gambling’—will discourage very, very few problem gamblers.

The study results were staggering. It examined more than 500,000 bets taken from an online sports-gambling site too gauge the effect that previous wins and losses had on future wins and losses. Within the study, the overall winning percentage for all bets was about forty-eight percent. Isolating only winning initial bets, the study authors found that in their next bet, the winners won at a rate of forty-nine percent. That a nice, but not amazing, improvement. What happened next, though, was jarring. Players who had won consecutive bets won their third bet fifty-seven percent of the time. Now we’re talking. Winners of three straight won forth bets sixty-seven! percent of the time, and fifth bets seventy-two percent.

Taken from a pool with an overall winning percentage of 48, those results are worth noting. 

Hot hand, indeed. 

The losers lost in just as incredible pattern; fifty-three percent of bettors who lost their initial bet lost their subsequent wager. Sixty percent of those who retained the wherewithal to make another wager lost their third. Those who kept going got down to a twenty-three percent success rate after five straight losses. 

Of course, anyone who has spent more than thirty minutes in a casino is aware of this phenomenon. It’s even got a name: the gambler’s fallacy. “If you’ve ever called heads on a coin flip, seen the coin land tails up, and then called heads again because ‘heads is due,’” Kang reminds us,  “you’ve been caught up in the gambler’s fallacy.”

If you’re a gambler, no matter what you think: you’re wrong

The study found that gamblers on streaks—good or bad—acted under the influence of the gambler’s fallacy in a way that prolonged both winning and losing streaks. “Winning bettors began placing more prudent bets because they assumed their luck would soon run out. Losers began placing bets with longer odds because they wanted to win big when their luck finally, inevitably changed.” 

The study’s findings are taken right out of the Charlie Munger playbook. Streaky gamblers who win, it found, “do so because they expect to lose, and streaky gamblers who lose do so because they expect to win. Or, more simply put, when you’re losing, you’re wrong, but when you’re winning, you’re also wrong."

Learning the very first mental model

Basic mathematics is the very first mental model Munger suggests people add to their toolkit. “Obviously, you've got to be able to handle numbers and quantities ‑ basic arithmetic.”  As an investor, of course, Munger predictably thinks the “great useful model” is compound interest. Next, is the elementary math of permutations and combinations as discovered by Pascal and Fermat. Interestingly, the pair engaged in the project at the behest of friends who needed to fairly award stakes to players in card games that needed to be suspended or interrupted in the middle of a hand. 

The insight, though, that Munger provides that’s useful is knowing basic statistical probability can guide conduct in ways that will lead to outcomes that outperform the average. Sometimes significantly so. All that’s needed is acquiring and using the system for deriving probabilities that is “dramatically consonant with the way that the world works. And it's fundamental truth.” While probability isn’t that hard to learn, Munger thinks what is difficult is to “use it routinely almost everyday of your life.” 

It turns out, Munger argues, that people mostly can’t automatically use this system. “If you understand elementary psychology, the reason they can't is really quite simple: The basic neural network of the brain is there through broad genetic and cultural evolution. And it's not Fermat/Pascal. It uses a very crude, shortcut ‑ type of approximation.” While what we have by dint of natural ability contains elements of Pascal's formulae in it, what we have is a very poor substitute.

The improvements to natural ability may be fairly minor, but the effects can be outsized. “If you don't get this elementary, but mildly unnatural, mathematics of elementary probability into your repertoire, then you go through a long life like a one‑legged man in an ass‑kicking contest. You're giving a huge advantage to everybody else.

The Exceptions: Warren Buffett & Moe Norman

One of the most interesting aspects of Munger’s argument in that famous section of his talk on worldly wisdom is the argument he uses immediately following his assertion that our brains just aren’t wired to calculate probability effectively. “So you have to learn in a very usable way this very elementary math and use it routinely in life” he said. And I completely agree. But I’m not so sure I follow his next point, “just the way if you want to become a golfer, you can't use the natural swing that broad evolution gave you. You have to learn to have a certain grip and swing in a different way to realize your full potential as a golfer.”

You don’t have to have a subscription to the Golf channel or have committed the Tiger Woods swing coaching tree to memory to know that today’s golfers have swings that don’t exactly resemble any movement our prehistoric ancestors likely made. Unlike the major movements in CrossFit—like the squat, the deadlift, the overhead press, etc—that are required by anyone who wants to sit down, stand up, put anything on a shelf or pick up anything off the ground, the golf swing doesn’t look like anything survival would have required hundreds of thousands of years ago.

I’m not completely convinced by Munger’s analogy, though. I think there may be people who do have these kinds of aptitudes naturally. Munger’s partner Warren Buffett comes to mind, actually. A dear friend, mathematician Paul Fife, who recently died had that kind of ability. I never knew him until he was more than fifty years old…but if he didn’t have those kinds of abilities at birth, he’d been so good at doing that stuff for so long it was effortless and seemingly natural. Another, more pertinent example considering the topic of gambling, is Freeman Dyson, who cracked the code on a prisoner's dilemma strategy in which "one player can enforce a unilateral claim to an unfair share of rewards." 

There’s one example in golf, too, that would seem to run counter to Munger’s point. Moe Norman. He was a legendarily strange guy, with a weird swing to match. In fact, his social awkwardness was likely one of the factors that drove—and kept—him away from the professional golf tour. But his homemade swing was dead straight.
 

One of the hot hand in gambling authors remarks that, “If there’s one idea to take away from the study, it’s this: just don’t gamble.” And don’t get into a competition of closest-to-the-centerline with Moe Norman or his disciples.

Will the Milwaukee Bucks win the NBA Draft? Lessons from their prediciment win or lose.

Learning from Losing: the Milwaukee Bucks case study

The Milwaukee Bucks lost a lot of games last year. The team won 15 games and lost an incredible 67—that’s a .183 winning percentage. It was the worst mark by far in a league that had a handful of teams seemingly trying not to win. As a result, the team will have the best shot at winning the National Basketball Association’s draft lottery tonight. Because of it’s woeful record, the Bucks will have a one-in-four shot at landing the top pick—and with it the right to select its choice of Andrew Wiggians, Joel Embiid, Jabari Parker, Julius Randle, or any other prospect it likes.

So, perhaps things are looking up for the nearly moribund franchise. Basketball savant and Grantland writer Zach Lowe points to another development that’s nearly as big a deal as the number one overall draft pick would be. He writes, about the Bucks in a piece on National Basketball Association front office intrigue, “The team’s medical staff has partnered with an outside consultant to develop a software program that tracks individual biological data for each player — which muscles are strong, which are weak, and what those findings mean for related muscles and joints. They’ve used the information to craft individual offseason workout plans for every player on the roster — a first for the team, according to John Hammond and David Morway, the team’s GM and assistant GM, respectively.”

This is a phenomenal insight into the way having deficiencies can hurt you. It’s easier to grasp intuitively when thinking about an athlete—if his or her body has a glaring weakness, it stands to reason that his or her weakness can easily cause problems in other strong areas when moving. It’s perhaps less obvious that having intellectual areas of weakness can do the same.

Play the game you know you’re going to win

Charlie Munger’s partner Warren Buffett recently talked about “The best really know when they are playing the game that they're going to win.”

Buffet and Munger are well known to love Ted Williams's approach to hitting. He took a very scientific approach to the task—his book on the subject was even called “The Science of Hitting.” Just about the single most important variable to predicting batting success for Williams was pitch selection. Get a good pitch to hit was rule 1. Munger and Buffet approach their craft the same way—only with an additional advantage. Williams had to swing before accruing three good pitches. Buffet and Munger could theoretically wait indefinitely. 

Ted Williams's 'heat zone' batting chart from 'The Science of Hitting'.

Williams even went so far as to chart his expected success rate at swinging at pitches in every possible location. Notice he didn’t bother charting his success rate outside of the strike zone. He didn’t plan on swinging at any balls not represented by the 77 that comprise the strikezone in the graphic above. And, if one account is to be believed, he didn’t need to. So good was Williams eye, so impeccable his plate discipline, an umpire was once reported to tell a young pitcher who complained about a called ball he thought had found the strike zone, “When you throw a strike, Mr. Williams will let you know.”

A display of Ted Williams's 'heat zone' in the Baseball Hall of Fame.

Buffett’s and Munger’s track records are so good, that they often get the kind of respect that the umpire apocryphally afforded Williams. But Buffett and Munger, just as much as Williams, needed to constantly display that discipline. Start swinging at bad pitches and making bad calls on stocks, and they’d get exposed pretty quickly.

Even the great ones fail sometimes

While Buffett does acknowledge that he and Munger have been quite good at staying within their circles of competence, he admits that he’s not perfect in this regard. “Charlie and I are reasonably good at knowing the perimeter of our circle of competence. I would say in my own case, I've gone out of it more often in retail than any other arena. It's easy to think you understand retail, and then subsequently find you didn't, as in the department store in Baltimore. You can say I was outside my circle when I bought Berkshire, though; I originally bought it to resell. But when I decided to buy control, that was a dumb decision -- but that worked out.”

Buffett made Mrs B, who ran Nebraske Furniture Mart, famous for having Williams-like discipline. Calling her “the ultimate” in operating within her circle of competence, Buffett pointed to what would be a curious decision for most.

Rather than take stock for Buffet’s purchase of her operation, Mrs. B wanted cash. Now, Berkshire Hathaway recently repelled a shareholder push to get the company to offer a dividend. For most, Buffett’s and Munger’s thinking goes, this is a terrible idea, because they’re so good at allocating capital, reinvesting is likely to result in vastly more profit for shareholders than getting cash. But Buffet recognizes that, for Mrs. B at least, taking cash was the better play. “She told me she wanted cash, not stock. It might seem like a bad decision, but it wasn't. She didn't know stocks. She knew cash, property, and retail, so it was a good decision.”

Of course, in the NBA, players are limited in the physical activities they can exclude in the course of their performance. Sometimes, life is like that, too. That’s where Greg Glassman’s notion of general physical preparedness comes in.

Glassman argues that 'general physical preparedness', or GPP, has been highly undervalued. "GPP has been given short shrift. There is more…especially where the margins of victory are super, super tight. I can make more ranking change in there with GPP than with sport specific training.

“Fixing chinks in your armor will manifest in improved sporting performance even when the chink was seemingly irrelevant to the activity.” Glassman provides a nice example from the real world—competitive skiing. “We got a hold of the guys at USA skiing and found out that they couldn’t do shit for pullups and the women had none. The guys sucked and the women were abysmal. And I said, ‘We’ve got to fix it.” Jonna Mendez is America’s best skier and she can’t do pull ups.” So she trained with Glassman for a summer, and by summer’s end she had 20 pull ups.  And she comes back and would tell you that pullups make a huge difference in skiing.”

Flourishing in complex environments

Glassman makes a point about fitness that translates to nearly any complex environment. “I am of the view that the demands physiologically, metabolically, hormonally, of sport are so complex that they’re not perfectly knowable," he said. His solution to dealing with this complexity is culled directly from Munger's 'latticework of mental models' playbook: "I want to throw out a broad net. I want to increase work capacity across broad time and modal domains.” What Glassman wants in the physical realm, Munger wants in the mental. 

While NBA players need to be generally physically prepared, because they can’t pick and choose their spots the way Williams could and even less the way Munger and Buffett can, the kind of identification of weakness and customized training program that Lowe cites the Bucks as having recently adopted can help. The Bucks had better hope it does, Lowe's piece points to the difficulty the team had in dealing with injuries to players such as Ersan Ilyasova, Larry Sanders, and Brandon Knight. Problems with injuries, it seems, are endemic to the organization. Consider this 2013 piece in Business Insider piece that pegged the Bucks as having paid more money to injured players than any other team in the league that season. 

Just as the Bucks are looking to improve their health through general physical preparedness, advanced metrics and other analytical approaches can help organizations determine how to put players in advantageous positions on the court.

The trick, as Buffett would say, is knowing when you’re playing to your strengths and when you’re not. Munger is famous for answering the question, “How do you beat Bobby Fischer at chess?” by saying, “Play him at anything but chess.”

Munger is on the record as thinking that one’s IQ is far less important than having a well-stocked toolkit of mental models, staying within one’s circle of competence, and only playing when one enjoys a competitive advantage. He once said, “"A money manager with an IQ of 160 and thinks it's 180 will kill you. Going with a money manager with an IQ of 130 who thinks its 125 could serve you well."

Ted Williams knew hitting was like swinging an axe. A nice example of applying a mental model from one activity to another.

Even the guy with the highest IQ will do better when he plays where he has an advantage

LeBron James is a physical genius. In basketball terms, a 180 IQ is far from a fair assessment. He’s a 200+. But even he has benefited greatly from the kind of discipline Munger and Buffett advocate. Interestingly, he’s done so largely as a result of analytics. Similar to the way the Milwaukee Bucks are looking at individual muscles within the physical systems of its players, the Miami Heat have scoured what its players do within its system on the court.

Consider how LeBron’s game has evolved to take advantage of his historic talents. Grantland's Kirk Goldsberry charts the evolution of the world’s greatest basketball player from Cleveland to Miami. 

Here's what Lebron James's shot chart looked like his last year in Cleveland:

James's shots tended to be closer to the basket in Miami than in Cleveland.

Lebron's shots continued to be of the higher percentage variety his second year; he took almost no three-point shots in 2011-2012. Goldsberry notes that he took barely any shots outside of 16 feet. James's efficiency helped Miami win the NBA championship that year--Lebron's first.

Amazingly, Lebron continues to evolve. Here’s what his shot chart looked like in 2013:

 

Despite the MVP award recently being bestowed on Kevin Durant, Goldsberry’s assessment that Lebron is basketball’s most valuable and its most versatile player stands. According to Goldsberry, Lebron “is acutely aware of his own game and his team’s strategy. He continues to find new ways to integrate his own evolving talents with those of his teammates, and he makes everyone better in the process. While it’s simple to label James a physical freak with outrageous basketball talents, that sells his progress, work ethic, and intelligence short. LeBron James is a basketball nerd who just happens to possess once-in-a-generation talent.” 

You don't need Charlie Munger to tell you that's a pretty good combination.

Will the Bucks Win?

Will the Milwaukee Bucks become winners? Lowe is skeptical, calling the Bucks open general manager job "probably the least appealing" of the six currently open NBA positions of its kind. But, there is some room for optimism. Lowe points out that the NBA’s new collective bargaining agreement aimed at creating “a system in which every team would be flexible enough to turn things around in one summer, NFL-style.” While he thinks that kind of parity is a “pipe-dream,” he remarks that the league “is undeniably leaner now than it was before.”

Lowe also recognizes a few attractive assets the Bucks possess, including "two intriguing young players in Giannis Antetokounmpo and John Henson"  and the a salary cap sheet that "basically resets after the 2015-16 season."

 

It could certainly be worse. Given the team's move to get in line with its peers and assess the general physical preparedness of its players, we can at least hope for a healthier season. Despite Lowe's pessimism, here's saying the team is finally headed in the right direction. And, in a year when it won just 18 percent of its games, the team's 25 percent chance of winning the draft means Bucks fans just might walk away from 2014 with a win. And a smile. Finally.

Destroying Good Ideas is a Good Idea; Bad Ideas a Great Idea; Bad Behavior the Best Idea

Charlie Munger is famous for recommending that people radically reconsider even their most firmly held ideas. His oft-repeated quote, "Any year that passes in which you don’t destroy one of your best loved ideas is a wasted year," has become something of a slogan among those interested in understanding Munger's ideas and approach to seeing the world.

A recent Farnam Street blog post outlines the way this works in doing the work Munger thinks is required in holding an opinion. Citing Munger it reads, "The ability to destroy your ideas rapidly instead of slowly when the occasion is right is one of the most valuable things. You have to work hard on it. Ask yourself what are the arguments on the other side. It’s bad to have an opinion you’re proud of if you can’t state the arguments for the other side better than your opponents. This is a great mental discipline."

In this destructive process, timing is important. Warren Buffett has famously credited Munger with having the best 30 second mind in the world. I wonder if Buffett would have done better in responding to a recent query about Berkshire's abstention from voting on Coca-Cola's executive compensation if he'd had Munger next to him as he does at (this weekend's) annual Berkshire Hathaway shareholder meeting.

In a recent interview with Becky Quick of CNBC, Buffett explained his decision to abstain, "Well, we abstained because— we didn't agree with the plan. We thought it was excessive. And— I love Coke. I love the management, I love the directors. But— so I didn't want to vote no. It's kind of un-American to vote no at a Coke meeting. So that's— but we— I didn't want to express any disapproval of management. But we did disapprove of— of the plan." I'm not quite sure how to take his 'un-American' comment, it seems as though he's just trying to lighten the mood (you be the judge: the interview is embedded below). But the sentiment doesn't seem to be at all consistent with Buffett's or Munger's normal positions...or common sense.



Consider Buffett's concerns from later in the interview, "The plan— compared to past plans was a significant change. And— there's already a 9 percent or so overhang in terms of options outstanding relative to the amount of sh— shares outstanding, 8 percent— 8 percent— 8 percent to 9 percent. And— this authorization of another 500 million shares. Not all of which would've gone on options. But that's another 11 percent of the company. And— and— I thought it was too much. And— I talked to my partner Charlie Munger, and he thought it was too much. So we abstained." Buffett has been, rightly, criticized for his response. The tenor of Buffett's remarks evolved a bit after that initial response, as in this interesting interview with Stephen Gandel. But I wonder if the change was for the better or worse.

To paraphrase Buffett, I love Warren Buffett, I really do. But I disagree with his position. I realize that going against the Oracle of Omaha is kind of un-American, but I think he's wrong on this one. Worse, he's wrong in a way that's a huge departure from his past position, "The way to get big shots to change their behavior is to embarrass them. The press has great opportunities for this, but the big institutional investors could help." 

If, for example, you used Buffett's line from the CNBC interview, "but taking on a committee...is a little bit like belching at the dinner table. I mean, you can't do it too often. If you do, you find you're eating in the kitchen pretty soon" on the Charlie Munger I've read about, wouldn't you expect him to reply, "Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your new peer group...then to hell with them." Peter D. Kaufman thought this insight so important, he used the sentiment in his dedication to Munger in the edition of "Poor Charlie's Alnamack" he edited (picture below taken from "Poor Charlie's").

Charlie Munger on importance of adjusting behavior to acquired wisdom.

It's not because his son is on the board, but Buffett would have hewed closer to his principles by saying to hell with them. At the very least, he could have spoken out publicly concerning the compensation plan in advance of the vote. Yes, he's right that the vote happened on 83-17% lines. Berkshire's 9 percent wouldn't have made a difference. But the reason the Berkshire annual meeting is finance's Woodstock is because Buffett and Munger tell the truth. And, usually, have the courage of their convictions.

If destroying good ideas is important, getting rid of bad ones should be even better. Of course, making sure your behavior comports with one's best, most current ideas is crucial.